A landlord was not entitled to rely on the existence of its own right to manage a company to stymie a right-to- manage application by its tenants
The Commonhold and Leasehold Reform Act 2002 enables qualifying leaseholders of flats to manage their buildings using a right to manage company established specifically for that purpose. The legislation permits leaseholders to take responsibility for management without having to prove mis-management by their landlord.
However, few landlords enjoy being relieved of their management responsibilities. Consequently, applications may be contested on procedural grounds. Danescroft RTM Co Ltd v Inspired Holdings Ltd [2013] PLSCS 125 concerned a substantive objection to an application based on section 73(4) of the 2002 Act, which prevents a company from qualifying for the right to manage if another company is already a right-to-manage company in relation to the premises.
The landlord tried to take advantage of this provision by incorporating its own right-to-manage company for the premises before the tenants did. The tenants complained that the landlord’s right-to-manage company had been incorporated as a device to defeat their own right to manage. They asked the Leasehold Valuation Tribunal to read section 73(4) purposively; they suggested that the legislation imposes a moratorium on further right-to- manage companies where there is bona fide prior right-to-manage company in place and that the company incorporated by the landlord did not qualify as a right-to-manage company for the purposes of the legislation.
The landlord drew the tribunal’s attention to the fact that section 73(4) does not prohibit a landlord from incorporating its own right-to- manage company. There was nothing to prevent one or more tenants from becoming members of the company and it was not a sham. Its own right-to- manage company could assume responsibility for management and relieve the landlord of the task.
Neither party was able to point to any previous authority on the point. Consequently, the tribunal had to start from first principles. It began by considering the aims and objectives of the legislation and concluded that section 73(4) prevents competing claims by rival right-to-manage companies formed by tenants.
The statute was enacted to confer rights on tenants and made no mention of landlords being able to acquire the right to manage – presumably because they are entitled to do so by virtue of their leases. It was unrealistic to suggest that tenants could apply to become members of the landlord’s right-to-manage company. A landlord could ignore applications from tenants to become members and there might not be enough tenant members to control a company.
If the tribunal were to adopt a literal interpretation of section 73(4), a landlord would be able to form its own right-to-manage company before its tenants could do so and would be entitled to continue to manage a property – perhaps badly. This would disenfranchise tenants, which would be absurd. The tribunal had no doubt that the landlord had formed its own right-to-manage company for the sole purpose of preventing its tenants from acquiring the right to manage and refused to allow the landlord to rely on section 73(4) to defeat the tenants’ claim.
Allyson Colby is a property law consultant
